Why I Prefer to Document Add-Backs Before Listing a Business
When business owners decide to sell, one question often comes up early in the process.
"When should we identify the add-backs?"
Over the years, I've found there are two approaches.
The first is to wait until due diligence. The business is listed, a buyer becomes interested, and everyone works through personal expenses, one-time costs, discretionary spending, and other adjustments after the buyer starts asking questions.
The second is to identify and document those items before the business ever goes to market.
I take the second approach.
Before I recommend listing a business, I review the financials with the owner and work to identify the adjustments buyers are likely to question. I want those conversations to happen before listing the business for sale, not after due diligence has already begun.
Does that sometimes mean delaying the listing?
Yes.
I believe it's the better tradeoff.
It's much easier to spend the time preparing upfront than to slow an active transaction because everyone is trying to explain the financials while the buyer is waiting for answers.
Preparing the financials in advance doesn't eliminate due diligence. Buyers should still ask questions and verify the information.
What it does is make the process more efficient.
The seller has already thought through the adjustments, supporting documentation is easier to provide, and buyers can spend more time evaluating the business instead of trying to understand the numbers.
Every transaction is different, but I've found the smoothest ones usually have one thing in common.
The preparation started well before the listing.
It's one of those lessons I keep coming back to.